CHAPTER 4

MANAGEMENT OF PUBLIC ACCOUNTING PRACTICE

Group 6 (3rd reporter)

Agno, Neal Mar
Cabilto, Lovely Jane
Guno, Shehara

Establishment and Organization of Public Accountant Practice

 Public accounting firms are usually organized as sole proprietorships or partnerships. Whatever the legal form of
organization, the hierarchy in the public accounting firm usually includes partners, managers or supervisors, in-
charge auditors.

This organizational structure of CPA firms is influenced the following factors:

 Need to be independent from clients
 Need of structure to encourage competence
 Increased risk of litigation faced by auditors

Figure 4-1. Public Accounting Firm Organization

Auditing Positions and Task in a Public Accounting Firm

Audit Partner
 Concerned with the overall quality of each audit.
 Signs the audit report, accepting ultimate responsibility for each audit, and is generally involved in maintaining
client relationships, planning, audits, and evaluating the audit findings.

Duties:
1. To plan and review all phases of an audit engagement.
2. To sign audit report.
3. To approve the firm’s billing to the client.
4. To obtain/establish contracts with clients.
5. To determine office operating policies.

Audit Manager/Supervisor
 Administers important aspects of audit engagements, scheduling the audit work to be done with client
personnel, assigning work to audit staff, supervising staff, and reviewing staff work.
 Responsible for controlling staff time and overseeing billing and collections.
Duties:
1. To act as a liaison officer between partners and other members of the staff.
2. To discuss with the client problems that the audit.
3. To exercise direct supervision on seniors in charge of specific audit may arise the course of engagements.
4. To review working papers and drafts of audit report.
5. To discuss reports and results’ of audit with clients.
6. To take direct charge of training programs.

In-charge (Senior) Auditor

 Work under the direction of audit managers and assist them in administering the audit.
 Generally participate in audit planning and provide direct supervision to staff auditors.

Duties:
1. To prepare audit program for an engagement subject to review.
2. To assign particular phases of the audit work to staff and to exercise direct supervision over them.
3. To perform certain audit procedures requiring skills and experience.
4. To take up with the client or with the partner or principal, problems, or questions that arise in the course of the
audit.
5. To assemble the working papers in an audit, and prepare a draft of the report and financial statements for
review and approval by the partner or supervisor.

Staff Auditor
 Perform various audit procedures and gather audit evidence to use as a basis for the audit reports.
 They may perform procedures that relate to a variety of aspects of a client’s activities.

Duties:
1. To prepare schedules and reports of findings.
2. To work on tax returns.
3. To check the accuracy of footings and extensions on books of accounts and other records.
4. To check postings of entries from the journals to the ledger.
5. To examine vouchers supporting minor disbursements.
6. Generally, to serve as an assistant.

Marketing Professional Services

Sections 250.1 and 250.2 of the revised Code of Ethics for Professional Accountants in the Philippines
1. When a professional accountant in public practice solicits new work through advertising or other forms of
marketing, there may be potential threats to compliance with the fundamental principles.
2. A professional accountant in public practice should not bring the profession into disrepute when marketing
professional services.

SOURCES OF CLIENTS
1. Referrals from businessmen through active participation in civic and community affairs.
2. Referrals from clients by maintaining his integrity and rendering prompt and efficient services to them.
3. Referrals from financial and government institutions by keeping his standards high.
4. Referrals from other CPAs by active involvement in professional organizations.
5. Referrals from legal and other professional firms.

PROFESSIONAL FEES
- CPAs in public practice shall comply with the provisions of section 240 of the Revised Code of Ethics for
Professional Accountants and professional fees and other types of remuneration.
1. When entering into negotiations regarding professional services, a professional accountant in public service may
quote whatever fee deemed to be appropriate. The fact that one professional accountant in public practice may
quote a fee lower than another is not in itself unethical.
 2. The significance of such threats will depend on the factors such as the level of fee quoted and the services to
which it applies. In view of these potential threats, safeguards should be considered and applied to eliminate
them or reduce them to an acceptable level.

Methods of Billing Clients

1. Actual Time Charges of Per Diem basis
2. Flat or Fixed Fee basis
3. Maximum fee basis
4. Retainer basis

AUDITING IN GLOBALIZED ENVIRONMENT

From the accounting perspective, the complexity of conducting international business operations across
national borders, each with a different set of business regulations, tax rules, and often different accounting methods
presents a daunting challenge for accountants and professional bodies that establish accounting and auditing rules.
The globalization of capital markets has also contributed to the need to address harmonization of financial reporting
requirement. This presently is what the International Accounting Standards Board (IASB) is tasked to accomplish and
to date, the standard-setting program of the IASB has gained worldwide recognition and acceptance.

REGULATION WITHIN THE FIRM

System of Quality Control- To ensure that a public accounting firm adheres to the standards of the accounting
profession, it shall establish and implement a system of quality control.

The Philippine Standard on Quality Control (PSQC) was promulgated to deal with the responsibilities of a frim for each
system of quality control for audits of financial statements and other services engagements.

Quality Control System- Is a set of policies and procedures designed to provide reasonable assurance that the public
accounting firm complies with professional standards and regulatory/legal requirements. The system should be design
to achieve the objective and the procedures necessary to implement and monitor compliance with those policies.

ELEMENTS OF A SYSTEM OF QUALITY CONTROL

The firm’s system of quality control shall include policies and procedures addressing each other of the following
elements:

(a)Leadership responsibilities for quality within the firm;

(b)Ethical requirements;

(c)Acceptance and continuance of client relationship and specific engagements;

(d)Human Resources;

(e)Engagement performance; and

(f)Monitoring

(a)Leadership responsibilities for quality within the firm

The firm shall establish policies and procedures designed to promote an internal culture based on the recognition that
the quality essential in performing engagements. Such policies and procedures should require the firm’s chief executive
officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent), to assume ultimate
responsibility for the firm’s system of quality control.
(b)Ethical requirements

The firm shall establish policies and procedures designed to provide it with reasonable assurance that the firm and its
personnel comply with relevant ethical requirements.

The Revised Code of Ethics for Professional Accountants in the Philippines establishes the Fundamental Principles of
Professional Ethics, which include:

 Integrity
 Objectivity
 Professional Competence and Due Care
 Confidentiality
 Professional Behavior

(c)Acceptance and continuance of client relationship and

specific engagements;

The firm shall establish policies and procedures for the acceptance and continuance of client relationships and specific
engagements, designed to provide it with reasonable assurance that will only undertake or continue relationships and
engagement where it:
(a) Is competent to perform the engagement and has the capabilities, time and resources to do so; and
(b) Can comply with ethical requirements.
(c) Has considered the integrity of the client and does not have information that would lead it to conclude that the
client lacks integrity.

(d) Human Resources

The firm shall establish policies and procedures designed to provide it with reasonable assurance that it has sufficient
personnel with the capabilities, competence, and commitment to ethical principles necessary.
(a) To perform its engagements in accordance with professional standards and regulatory and legal requirements,
and
(b) To enable the firm or engagement partners to issue reports that are appropriate in the circumstances

Such policies and procedures address the following personnel issues:

• Recruitment;
• Performance evaluation;
• Capabilities;
• Competence;
• Career Development;
• Promotion;
• Compensation; and
• The estimation of personnel needs

Capabilities and competence are developed through a variety of methods, including the following:

• Professional Education
• Continuing professional development, including training
• Work experience
• Coaching by more experienced staff, for example, other members of engagement team